THE ROAD AHEAD - Bell Potter

THE ROAD AHEAD Page 2

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BELL POTTER SECURITIES LIMITED ABN 25 006 390 7721 AFSL 243480

DISCLAIMER: THIS REPORT MUST BE READ WITH THE DISCLAIMER ON THE FINAL PAGE THAT FORMS PART OF IT.

S&P/ASX 200 INDEX

[First futures continuous contract] Technical comment

Support = 6,873 and 6,700 Resistance = 7,110 and 7,155

Last = 7,071

The S&P/ASX 200 Index knocked on the door of the February 2020 high of 7,155

yesterday as the bull-run which started in March 2020 works to break into

uncharted territory. Technically, a period of price consolidation could be expected

below 7,155 as this area represents the last line of resistance before the index

moves on to explore new technical territory. The index has become somewhat

over extended technically, and a period of price consolidation would be regarded

as healthy. Support should be encountered at 6,873 and some price consolidation

could involve a pullback towards 6,873 before a major attempt is made to scale the

7,155 level.

An Observation

The S&P/ASX 200 Index has enjoyed a strong move higher over the twelve

months as the combination of historically low interest rates and improving

economic conditions in China has helped drive both the financial and resources

sectors. Overseas investors who have been increasing their stake in Australian

resource companies will now be benefiting from both the rise in the resources

sector and the rise in the Australian dollar. In this respect, overseas investors are

enjoying a win- win situation.

In Conclusion

The S&P/ASX 200 Index has become technically over extended on the upside

and while the major trend is clearly up, a period of price consolidation could be

expected over the next couple of months. Resistance is now set between 7,110

and 7,155, while support on the other hand is located at 6,873 and again at 6,700.

Fresh buyers could be expected to emerge on any short term weakness back

towards 6,873. Only a weekly close below 6,700 would be viewed as a reason to

become concerned technically. At this point it would be reasonable to expect an

attempt to create a footing above the 7,100 level, possibly sometime in the second

half of 2021.

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May 11th 2021


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S&P 500 INDEX


Support = 4,058.00 and 3,900.00 Resistance = 4,300.00 and 4,400.00

Last = 4,232.80

The S&P 500 Index recently made new all-time highs as the upside momentum

from the exceptional technical V formation which began in March 2020 extended

into new blue sky territory. The market’s technical action continues to reward

investors who have consistently bought into any short term weakness, and to that

end, there is no sign that this strategy should be altered. A weekly close below

4,058.00 would be required to indicate that traders might be about to change their

trading strategy from previously ‘buying dips’ to ‘selling rallies’.

An Observation

The S&P 500 index continues to forge ahead despite being technically over

extended on the upside. That said, the U.S. Federal Reserve’s aggressive

monetary stimulus policy has cultivated a rising appetite for risk across a variety of

assets. Valuations are now being stretched possibly creating vulnerabilities in the

U.S. financial system. Investors need to be mindful that in this environment, prices

may be vulnerable to “significant declines” should risk appetite fall, according to a

recent U.S. Federal Reserve report.

In Conclusion

The S&P 500 Index remains in a solid uptrend and technically there is no

meaningful resistance to prevent prices moving to even higher levels. That said,

the S&P 500 Index has become technically over-extended on the upside, leaving

investors vulnerable to a more serious corrective phase should one eventuate. In

the meantime investors will continue to use any short term weakness towards

4,058.00 as a buying opportunity. A weekly close below 4,058.00 would be

required to signal that a more sizable corrective phase may be at hand, possibly

towards the major support set at 3,900.00.

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May 11th 2021


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COMEX GOLD


Support = US$1,802 and US$1,762 Resistance = US$1,924 and US$1,966

Last = US$1,834

The Gold price has recently recovered from a technical corrective phase which

had at one stage threatened the longer term outlook for the yellow metal. The

technically defensive action included a couple of price spikes below US$1,700

before finding some solid support at US$1,673. The recent move back above

US$1,802 should be viewed as positive as it has returned some upside momentum

and restored some lost confidence in the process.

An Observation

The gold price has lagged in the last few months despite the increased demand for

Exchange Traded Funds (ETFs) backed by gold. Some market observers believe

the increased interest in trading “Bitcoin” has contributed to the reason for the

lacklustre performance in the precious metal.

In Conclusion

The Gold price remains within its long-term uptrend, and despite the recent price

weakness the 150-week moving average (depicted by the red line in the chart

above) remains well below the current price and also continues to trend up.

The recent weakness has caused some concern, making US$1,673 an important

technical level of support going forward. While the recent rebound back above

US$1,802 has returned some confidence to the bulls, they really need to see the

price revert back above US$1,924 to regain full confidence. The latest technical

action, while constructive, is not yet convincing enough as any move back below

US$1,762 would create further doubt and heighten technical concern.

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May 11th 2021


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COMEX COPPER


Support = US$4.36 and US$3.96 Resistance = US$4.65 and US$5.00

Last = US$4.65

The Copper price continues to excel on the upside, recently bursting through the

February 2011 top of US$4.65 with ease. The price is now trading at levels not

seen in more than a decade and now looks set to potentially explore US$5.00 and

above. Technically however, the copper price has become somewhat

overextended and a pullback or a period of price consolidation at this time would

be seen as healthy longer term. Support is now set at US$4.36 and we would

expect any short-term weakness towards that level to encounter fresh buying.

Resistance is now situated at current levels and again at US$5.00.

An Observation

Not surprisingly the copper market continues to benefit from positive economic

data and the recent price move above US$4.65 bodes well for Australian miners.

The gains however will continue to rely heavily on positive economic data from

China and also the demand for copper created by a global economic recovery.

In Conclusion

The Copper price is currently testing levels not seen in a decade as the bull

market which started in March 2020 looks set to move into overdrive. The price

however has become very over extended on the upside and technically some price

consolidation around current levels would be viewed as healthy. Only a weekly

close back below US$3.96 would be reason for concern. Meanwhile, any pullback

towards the US$4.36 should attract fresh buying and purchases made on any such

weakness should prove to be rewarding. Indeed, it would not be a surprise to see

copper trading above the US$5.00 at some stage over the next six months.

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May 11th 2021


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BRENT CRUDE OIL

[Brent futures June contract] Technical comment

Support = US$64.00 and US$60.00 Resistance = US$70.00 and US$74.45

Last = US$68.64

The Brent crude oil price has been on a tear to the upside since November last

year. Since then the price has risen from US$38.00 all the way to nearly US$70.00

in just over six months. The recent technical action includes a corrective phase

which saw the price pull back to US$60.00 before moving higher again. The price

is now poised for another attempt to erode the supply at US$70.00 and a weekly

close above that level would bode well for a sizable move higher and a test of the

key resistance set at US$74.45, a level not seen since May 2018.

An Observation

The Brent crude oil price continues to be dominated by volatility with the main

influence coming from supply constraints instigated by Saudi Arabia and also

fluctuations in the greenback. Market observers point to the recent weakness in

the US dollar, the Saudi Arabia + OPEC production cuts and expectations of a

global economic recovery post COVID-19 as the major influences on the price of

oil since November 2020.

In Conclusion

The Brent crude oil price is currently testing the key technical resistance set

between US$70.00 and US$74.45. The resistance at US$70.00 and above will

prove hard to erode and it will most likely take some time for the price to try and

establish a footing above that level. Support on the other hand should be

encountered at US$64.00 and again at US$60.00. The supply at US$70.00 and

above could put a lid on any upside move for the remainder of 2021. Traders

should look to sell into any rally towards US$74.45 in the next few months looking

for the price to subside back below US$60.00 over time.

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May 11th 2021


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AUSTRALIAN DOLLAR


Support = 0.7565 and 0.7414 Resistance = 0.7852 and 0.8008

Last = 0.7775

The Australian dollar (AUD) has continued in a broad uptrend ever since it

bottomed out in March 2020. The break above 0.7414 in December 2020

confirmed the overall positive longer-term prospects for the currency. The recent

price consolidation suggests that once the 0.8008 level is taken out on a weekly

close basis, it will provide the springboard technically for the next sizeable move

higher. Support is now set at 0.7414 and only a weekly close below that level

would be regarded as reason for concern.

An Observation

The AUD has moved higher in the past six months in line with the demand for

commodities like copper and iron ore. China has seen more favourable economic

data coming out over the same period. We believe that higher commodity prices

overall should bode well for the AUD going forward.

In Conclusion

The AUD has now successfully secured a solid footing above the 0.7414 level and

the technical action suggests that once the supply situated at 0.8008 is finally

eroded, a sizeable move higher should unfold. Meanwhile, any short term

weakness should be regarded as only corrective, and as such, should be used as

a buying opportunity. Support should now be encountered at 0.7565 and again at

0.7414. We would continue to advocate buying the AUD on any weakness

towards 0.7414 looking for the price to eventually break above 0.8008 and work

higher over the next six months. Only a weekly close back below 0.7414 would be

a reason for concern technically.

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May 11th 2021


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US 10-YEAR BOND YIELD

[Yield basis first futures continuous contract] Technical comment

Support = 1.50% and 0.90% Resistance = 1.90% and 2.00%

Last = 1.571%

The US 10-year bond yield broke above the weekly downtrend in November 2020

when it closed above 1.00%. The break was followed by a solid move higher but

even more importantly, the yield achieved a weekly close above 1.43% indicating

that a major bottom may now be in place. Near term resistance is now set at

1.90% and again at 2.00% and a weekly close above 2.00% would be viewed as a

clear indication of higher yields in store longer term.

An Observation

The U.S. Federal Reserve remains committed to aiding the U.S. economy into

recovery from the pandemic, and continues to hold short term rates near zero. The

recent move higher in bond yields indicates that the market is concerned the U.S.

Fed may have to raise interest rates sooner than anticipated, especially if the

current rise in commodity prices gathers pace and causes a spike in inflation.

In Conclusion

The 10-year bond yield is likely to remain in a trading band between 1.43% and

1.90% over the next six months. The risk reward ratio suggests there is a slight

bias towards yields hitting 1.43% rather than 1.90% during that period.

Kevin McKay

Research Associate

The following may affect your legal rights:

DISCLAIMER

This document is a private communication to clients and is not intended for public circulation

or for the use of any third party, without the prior approval of Bell Potter Securities Limited.

In the USA and the UK this research is only for institutional investors. It is not for release,

Tuesday

May 11th 2021


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publication or distribution in whole or in part to any persons in the two specified countries. In

Hong Kong this research is being distributed by Bell Potter Securities (HK) Limited which is

licensed and regulated by the Securities and Futures Commission, Hong Kong. This is

general investment advice only and does not constitute personal advice to any person.

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financial situation, particular needs and investment objectives (‘relevant personal

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